France, Spain Borrowing Cost Declines

3/15/2012 8:27 AM ET

France successfully met the maximum limit on its bond auction on Thursday, while the Spanish bond issue raised less than its maximum target. Borrowing costs of both France and Spain decreased on cheap liquidity provided by the European Central Bank.

The French government raised EUR 8.461 billion, top end of the EUR 8.5 billion goal.

The debt management agency AFT sold EUR 3.26 billion benchmark 5-year notes at a cost of 1.78 percent. The yield fell from 1.93 percent on notes issued on February 16. The bid-to-cover ratio was 1.98 percent compared to 1.99 times at the prior issue.

France sold EUR 2.106 billion notes maturing on April 2014 at an average yield of 0.7 percent. Demand exceeded the offer by 2.39 times.

Also, it auctioned EUR 1.93 billion from securities maturing on October 2014, at a cost of 0.86 percent. Further, it received EUR 1.165 billion from notes maturing on February 2016 at a yield of 1.4 percent.

Spain failed to raise the maximum EUR 3.5 billion target set for the auction, which was the first offering since the EU ministers agreed to relax the nation's budget deficit target for this year to 5.3 percent of GDP from the initial estimate of 4.4 percent.

The treasury received only EUR 3 billion today, but the borrowing cost decreased slightly.

The yield on bonds maturing on 2015 fell to 2.440 from 2.966 percent at the prior auction. The 2016 bonds yield dropped to 3.374 percent from 3.748 percent. The yield on the 2018 bond came in at 4.193 percent.

Demand for three-year bonds rose to 4.96 times from 4.4 times at the previous issue. The bid-to-cover ratio for 2016 bonds increased sharply to 4.13 from 2.2 times. Demand for 2018 bonds exceeded offer by 2.9 times.

On February 29, the European Central Bank allotted a record EUR 529.53 billion in its second three-year loans to 800 banks. The massive injection improved liquidity and reduce the cost of funds.

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